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Monday, June 26, 2006

IMS strategy for fixed line players

I heard an interesting presentation by Dr. Jospeh Schaefer, Head of Technical Strategy and Innovation, at Arcor at an NGN conference I spoke at earlier in this month. Arcor are the no.2 fixed line player in Germany behind DT, covering 50% of German geog, part of Vodafone (part of the Mannesman acquisition), and currently profitable.

Vodafone had largely left Arcor alone. But now, VF having ditched their fixed-mobile substitution strategy and decided to embrace fixed/internet/VOIP, they are starting to get very interested in how to integrate much more closely with Arcor to fend off the DT/T-mobile/T-Online integrated threat.

Dr. Schaefer said that his company accepts there is a paradigm shift occuring - a "separation of the layers of transport and service". They worry about fixed carriers being reduced to transport only. (See www.telco2.net/manifesto). They feel that an NGN-based IMS model may be a way forward ("the heir to legacy POTS?"), but aren't 100% sure.

They recognise that their voice revenue will eventually whittle away to very little (from 50% of total today), but they need to shore it up for now. So, they are focused in the short/medium term on stabilising their voice business.

So, they have developed something called 'Voice over NGN' (VoNGN), to compete with 'VOIP' (* See Our Comments below).

It involves a Session Border Controller which creates a sort of 'intranet' (secure/high quality) for the consumer's home. It links ('federates') Arcor's walled garden with other carriers' walled gardens (a sort of inter-carrier connection, a bit like how ISDN worked) as well as to the open internet.

It competes with 'pure VOIP' (*) due in 3 ways (Dr Schaefer calls is 'Q3' strategy):

1.) Quality of Service
2.) Quality of Security features (no malware, no number spoofing)
3.) Quality of service features (new voice features, eg. call completion/busy etc)

The business model is: Network Access + Services bundled in a flat fee + a Service Portfolio of digital home stuff (to be developed).

- they recognise need to become much more IT literate (get away from bad old telco habits).
- they need to investigate User Generated Content and blogs and see how to leverage them.
- they need to leverage their core asset, their network, which will soon be delivering 50 meg/sec (up from 16 today).

[NB: As an aside, they don't see Wimax working due to low availability of spectrum in Europe, and very poor indoor coverage - they've done lots of trials and it just doesn't work].

We like this approach. It's practical and relevant and focuses on 'LEGACY OPTIMISATION', one of the twin pillars of our 'Telco 2.0 Roadmap'. Perfect for the short term. However, in parallel with this we need the GROWTH story (the second pillar); and this is clearly still missing at most telcos (as current P/E ratios demonstrate).

To start with we need to be careful about terminology around 'VOIP' and thus what we are trying to compete with (esp. in terms of 'quality of service'). As Wittgenstein might observe, we are are using the wrong language to describe the problem.

'VOIP' still means different things to different people:

- Meaning A: applying SIP URI's on softphones over unregulated wireless bandwidth (very open to spam etc).
- Meaning B: semi-closed proprietary systems like Skype (very useful presence functionality if you can get on people's buddy lists, but fast innovating and, if linked to an e-commerce and payment community like eBay/PayPal, then very useful).
- Meaning C: PSTN simulation of VOIP (approach being taken by the operators, open and relatively safe with high 'QoS', but rather dull on its own and not profitable).

So, Arcor are really competing against Meaning A and Meaning C, but not Meaning B, and B is where the value/profits are most likely to be.

To compete properly then (ie. the GROWTH part of the strategy) fixed line players like Arcor should focus on where the QoS problem is most acute: in the home, in the set up of a home network. This should therefore be the fourth 'Q' (a 'Q4' strategy). They should try to own the access point via a Home Gateway package bundled with DSL and FMC offerings. (Ignore Set Top Box for now, as it's too complicated).

A standardised Home Gateway such as the one Verizon offers via OEM'd Westell kit could offer low support costs and greater consumer 'lock-in' and thus shore up the dam a little longer and more effectively.

The Editor, IMS Insider

IMS SERVICES BRAINSTORM, 4-5 OCT, LONDON: www.imsservicesforum.com

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